Research guides policy initiatives

By John Hood | Apr 17, 2013

RALEIGH — For a group of people who claim to believe in empirical study and higher learning, liberal politicians and other critics of North Carolina’s new conservative leaders seem remarkably uninformed or contemptuous of the research basis for the policy initiatives now being debated in Raleigh.

For example, Gov. Pat McCrory’s budget proposes to convert teacher-assistant positions in second and third grade into funding for teaching positions. While generating some apocalyptic rhetoric from critics, this proposal is not only imminently sensible but also consistent with decades of research suggesting that adding aides to classrooms other than kindergarten and first grade does not produce measurable academic benefits. In higher grades, tax dollars are best spent on high-quality teachers and educational materials. Outside of a few interest groups and partisans, this fact is widely accepted by education researchers.

Similarly, a bill to focus North Carolina’s early childhood spending on poor children prompted lobbyists for the preschool industry to complain vociferously. But again, while there is some empirical evidence for long-term benefits from spending tax dollars on high-quality preschool programs for truly disadvantaged children, subsidizing preschool for kids well above the poverty line is unlikely to have lasting academic benefit. It simply gives their parents a free service and their preschools more revenue. This is not a conservative talking point – it is a conclusion shared by scholars of all stripes.

More generally, the strategy McCrory and legislative leaders have chosen to address North Carolina’s economic challenges – reforming taxes and regulations in the short run while redirecting tax dollars from public assistance to roads and schools in the long run – is well supported by the available data on what makes state economies prosper.

Studies of economic growth have proliferated over the past 20 years. I can’t say they have all produced the same results. There remain many areas of disagreement. Some studies conclude, for example, that the overall level of taxation has a consistent, negative effect on job creation and income growth by discouraging private investment or household spending. Other studies, however, suggest that it depends on how the resulting tax money is used – that if the revenue is spent effectively on education or infrastructure, the resulting gains in productivity can over time exceed the cost to the economy of higher tax burdens.

Regardless of which of these conclusions you find more persuasive, you should know that the evidence for the following two propositions is actually stronger:

• At any given level of overall taxation, economies fare better when their governments avoid high marginal tax rates, particularly on savings, private investment, and corporate income.

• Public assistance programs such as Medicaid and unemployment insurance do not make economies more productive. States such as North Carolina that have maintained relatively high spending on such programs have hampered their economic growth by discouraging both private and public investment.

Knowing that, you are better prepared to interpret what the new leadership in Raleigh is really doing – and why. To the extent Gov. McCrory and state lawmakers can reform the state tax code to reduce marginal tax rates, especially on private capital formation, North Carolina’s economy will likely show immediate, significant improvement. And to the extent they have already reformed unemployment insurance and succeed in reforming North Carolina Medicaid, the most-expensive Medicaid program in the South, that will free up scarce resources to devote to growth-enhancing tax relief, infrastructure investment, and education reform in the future.

I’ve been in the public-policy research business for nearly a quarter of a century. I am under no illusions that all questions have been answered. I expect and welcome continued study, analysis, and debate about what governments should and shouldn’t do. But at some point, it becomes impossible to deny the existence of some firm conclusions.

They include the wisdom of targeting education dollars to teachers, targeting preschool dollars to at-risk students, and keeping marginal tax rates and welfare spending as low as feasible. McCrory and legislative leaders have done their homework. Their critics haven’t.

Hood is president of the John Locke Foundation, which has just published First In Freedom: Transforming Ideas into Consequences for North Carolina. It is available at JohnLockeStore.com.